Alden and former Digital First Media execs prosper despite lawsuits and bad investments

Newspaper executives from Alden Global Capital and Digital First Media took home six-figure compensation from a failing pharmacy investment last year, even as sales and share prices in the drugstore chain were plummeting.

Alden, the Manhattan-based vulture hedge fund that owns the DFM newspaper chain, has conspicuously downsized in the past year as it grapples with lawsuits, widespread negative publicity about its plundering of local newspapers, and some prominent bad investments.

But none of this bad luck has stopped Alden’s executives — including president Heath Freeman and former Digital First CEO Steve Rossi — from raking in six-figure paydays from an investment that was literally made at the expense of newsrooms across the country.

Fred’s: Taking money to make money

Two years ago, as we’ve reported previously, Alden execs squirreled $158 million out of DFM newspapers to buy Fred’s stock. Yes, they just plain took that money to secretly invest in Fred’s, a fact that never would have seen the light of day but for a lawsuit this year that revealed some of the privately held Alden’s financial dealings.

The Fred’s investment quickly went south after an expected merger with the Rite Aid chain fell through. So Alden loaded up the Fred’s board with real estate experts and began unloading assets.

Fred’s recently sold its specialty pharmacy division to CVS for $40 million. Former Digital First Media executive Joe Anto, now Fred’s interim CEO, said, “The cash proceeds will allow us to pay down a significant portion of our debt and also be used for general corporate purposes.”

Soon the financial press was speculating that Fred’s would sell off its 600 remaining stores, and by June, Fred’s announced it was exploring the sale of retail pharmacies.

According to a MoneyWise.com analysis of “The Struggling Stores Most Likely to Go Belly-Up Next,” all of Fred’s pharmacies may soon be up for sale. “Sales have been sagging at Fred’s Pharmacy,” the analysis reads. “In June 2018, Fred’s announced it was seeking advice on a sale of the rest of its retail pharmacies.”

It could be a tough pitch. Gross sales at Fred’s dropped 4.3 percent in the last fiscal year, when the chain showed a net loss of $139 million.

That staggering loss doesn’t mean the folks from Alden/DFM who made the bad bet on Fred’s are hurting, however.

According to the company’s latest shareholders’ proxy, Alden president Heath Freeman took home $340,000 in stock awards last year after becoming chairman of the Fred’s board. And Steve Rossi, former CEO of DFM, was rewarded with $205,208 in cash and stock for joining the Fred’s board.

As Fred’s interim CEO, Joe Anto was paid $408,000 this past year in stock and cash, including a $100,000 signing bonus when he left DFM to join Fred’s.

“Number one, Alden or any of their peers, doesn’t get involved in something to lose money,” DFM’s board chair Joseph Fuchs told a group of Denver Post employees in June. “So, what is an appropriate profitability? You know, that’s a real tough question to ask.”

Battle of the vultures

In the course of this debacle, Alden’s assets have shrunk by almost half. According to a March 29, 2018 SEC filing, Alden had $1.35 billion in assets under management, down from the $2.56 billion reported in its 2016 filing.

Meanwhile, Alden is embroiled in several lawsuits, including one that’s taken a surreal turn.

Alden is scheduled to go to trial this month after it was sued by fellow hedge fund Solus Alternative Asset Management for allegedly withholding meeting minutes and financial information from Solus, which also owns part of Digital First Media (read about the suit here).

But in a case reminiscent of the preschool taunt “I know you are, but what am I?,” Alden quickly turned around and sued Solus for… pretty much the same thing. Court documents from both Delaware cases show an ugly battle between vulture funds trying to out-vulture each other.

The new lawsuit involves a byzantine mishmash of Delaware and Cayman Island investment funds controlled by Alden and Solus that together own shares in a Solus-controlled spinoff of NextWave Wireless called NextWave Holdco. The venture, according to Alden’s lawyers, was set up to quickly sell off NextWave’s wireless spectrum licenses and technology. Six years later, none of licenses have been sold, according to the lawsuit.

Alden also accuses Solus of taking control of NextWave Holdco’s board — following a classic script from Alden’s own play book.

Alden charges that Solus withheld financial information that would permit Alden to understand how its “significant capital contributions” to NextWave have been used or “squandered.” The complaint also asks why NextWave “failed to obtain a buyer for its valuable wireless spectrum assets during its nearly six-year existence.”

Alden is also named as a defendant in a $10 million-plus lawsuit involving the liquidation of Pappas Telecasting radio and TV stations in the western U.S. The hedge fund is accused of not sharing the proceeds with former Pappas CFO Bruce Yeager after the stations were sold.

While it’s possible — even likely — that all three suits will end with secret settlements, what’s clear is that Alden’s star has dimmed in recent years.

Recently, even DFM’s chairman seemed to acknowledge the hard times.

“Trust me. I know there’s anxiety in this room,” Fuchs told the Denver staff in June. “But there’s anxiety around the board table, too. Of sustaining the business, and doing the right thing. And we don’t always do the right thing.”